Challenges of Money Market Mkt in India

The India money market is a monetary system that involves the lending and borrowing of short-term funds. India money market has seen exponential growth just after the globalization initiative in 1991. It has been observed that financial institutions do employ money market instruments for financing short-term monetary requirements of various sectors such as agriculture, finance and manufacturing. The performance of the India money market has been outstanding in the past 20 years. The central bank of the country - the Reserve Bank of India (RBI) has always been playing the major role in regulating and controlling the India money market. The intervention of RBI is varied - curbing crisis situations by reducing the cash reserve ratio (CRR) or infusing more money in the economy. Money market instruments take care of the borrowers' short-term needs and render the required liquidity to the lenders. The varied types of India money market instruments are treasury bills, repurchase agreements, commercial papers, certificate of deposit, and bankers acceptance. The major players in the money market are Reserve Bank of India (RBI), Discount and finance House of India (DFHI), banks, financial institutions, mutual funds, government and the giant corporate houses. Indian money market has a dichotomic structure. It has a simultaneous existence of both organized and unorganized money markets. The organized structure consists of the RBI , all scheduled and commercial banks and other recognized financial institutions as mentioned above. However, the unorganized part of the market consists of local moneylenders, indigenous bankers, traders, etc. This part of the market is outside the purview of the RBI.

Issues and challenges of the Indian money marketThe money market in India has undergone tremendous developments since past twenty years. However, it is still not free of certain rigidities that are hampering the growth of the market. They are: 1. Dichotomy between Organized and Unorganized Sectors:

The most important defect of the Indian money market is its division into two sectors: (a) the organised sector and (b) the unorganized sector. There is little contact, coordination and cooperation between the two sectors. In such conditions it is difficult for the Reserve Bank to ensure uniform and effective implementations of monetary policy in both the sectors.

2. Predominance of Unorganized Sector:Another important defect of the Indian money market is its predominance of unorganised sector. The indigenous bankers occupy a significant position in the money-lending business in the rural areas. In this unorganized sector, no clear-cut distinction is made between short-term and long-term and between the purposes of loans. These indigenous bankers, which constitute a large portion of the money market, remain outside the organized sector. Therefore, they seriously restrict the Reserve Bank's control over the money market, 3. Wasteful Competition:

Wasteful competition exists not only between the organised and unorganised sectors, but also among the members of the two sectors. The relation between various segments of the money market are not cordial; they are loosely connected with each other and generally follow separatist tendencies. For example, even today, the State Bank of Indian and other commercial banks look down upon each other as rivals. Similarly, competition exists between the Indian commercial banks and foreign banks. 4. Absence of All-India Money Market:

Indian money market has not been organised into a single integrated all-Indian market. It is divided into small segments mostly catering to the local financial needs. For example, there is little contact between the money markets in the bigger cities, like, Bombay, Madras, and Calcutta and those in smaller towns. 5. Inadequate Banking Facilities:

Indian money market is inadequate to meet the financial need of the economy. Although there has been rapid expansion...

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...Chapter 9
Question #1
What characteristics define the moneymarket?
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Question #7
Why do businesses use the moneymarket?
-Moneymarkets are useful from a business standpoint because they provide banks with readily disposable income to loan to businesses that need an inflow of cash over a short amount of time. Businesses borrow from the banks and then have to make interest payments on their loans. The banks that profit on these interest payments and the businesses use the loans to generate more income for themselves. Since moneymarket accounts are frequently used in mutual funds, you can easily enter into buying stock shares or a bond fund.
Question #10
Which of the moneymarket securities is the most liquid and considered the most risk free? Why?
-The U.S. Treasury Bill or T-bills are sold by the government to raise money....